News and Commentary

IRS Clarifies SECURE Act Rules for Withdrawals from Inherited IRAs By Sean Deviney, CFP®*

The SECURE Act signed into law at the end of 2019 brought new restrictions to non-spouse beneficiaries of inherited individual retirement accounts (IRAs), requiring them to empty those accounts within 10 years of the original owner’s death and pay the taxes due. Not only was the new law bad news for beneficiaries who were previously allowed to stretch out withdrawals from inherited accounts over their lifetime and yield continuous tax-deferred growth, but the language of the new provision left a lot of room for interpretation. The IRS attempted to clarify the intent of the law with new guidance issued in early 2022.

Build an Emergency Fund

One of the best ways to prepare for an economic downturn is to have an emergency fund saved up to cover at least six months of your living expenses, including, but not limited to, mortgage or rent payments, utilities, health and property insurance, required loan payments, and costs for groceries, gas, child care and medical care. Even if you are lucky enough to stay employed and keep your business running through the current crisis period, an emergency fund can go a long way to cover all of life’s unpredictable expenses, including costly home repairs, appliance replacements and bills for medical care. You can set a goal by working backwards, taking into account all of your required monthly expenses. Keep these assets liquid and separate from your other savings accounts so you can access them quickly and without fear of incurring any tax liabilities. As part of your plan, consider how you will replenish your savings to protect yourself and your finances from an unexpected emergency.

To understand the laws surrounding inherited IRAs, one must first understand the rules of required minimum distributions (RMDs). When an original IRA owner reaches age 72, he or she must begin taking annual RMDs from those accounts and paying the applicable taxes at their ordinary income tax rates. The amount of each RMD depends on the value of the IRA and the account owner’s life expectancy at that point in time.

When an IRA owner passes away, his or her surviving spouse, minor children and dependents who are disabled, chronically ill or less than 10 years younger than the decedent are the only named beneficiaries who may treat those IRAs as their own and stretch-out distributions over their respective lifetimes. Under the SECURE Act, other beneficiaries must draw down the balance in that account by the end of the 10th year following the original owner’s death.

Initially, taxpayers assumed that the SECURE Act enables them to defer taking RMDs from inherited IRAs until the 10th year after the original account owner’s death. However, recent guidance from the IRS clarifies that beneficiaries (other than a spouse or minor child) must:

This means beneficiaries of IRAs whose original owners were age 72 or older must take annual RMDs from those accounts (and pay the related tax liabilities at their individual income tax rates) in years one through nine following the original account holder’s death and remove any remaining balance from those accounts (and pay the related tax liabilities) by the end of year 10. Depending on the value of the IRA, this could become an expensive tax liability for named beneficiaries, even putting them into higher tax brackets for which they will pay higher tax rates on ordinary income and certain capital gains.

With this new guidance in mind, individuals with IRAs should take the time to review their existing estate plans and meet with their financial advisors to consider new or additional strategies to improve tax savings during their lives and the lives of the beneficiaries they leave behind. Planning under the guidance of professional advisors can also help named beneficiaries prepare for tax efficiency when they are recipients of inherited retirement accounts.

About the Author: Sean Deviney is a CFP®* professional, a retirement plan advisor and a director with Provenance Wealth Advisors (PWA), an independent financial services office affiliated with Berkowitz Pollack Brant Advisors + CPAs. For more information, call (954) 712-8888 or email

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Sean Deviney is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional.

The information contained in this report has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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Posted on August 25, 2022